Seeking Alpha
Profile| Send Message|
( followers)  

In the next four months more than 500,000 job losses are baked in the cake. The reason? The temporary Census workers hired so far this year will be largely ending their assignments during the third quarter and will be looking for employment elsewhere. This may be increased to an even larger number because a few more Census workers could be added in June. In addition, state and local governments are still trying to react to decreased tax revenues and more layoffs are likely there.

The addition of Census workers in June is not a sure thing. Calculated Risk has estimated that the Census Bureau will actually start laying workers off in June:

For large image, click here.

My article Friday at TheStreet.com has an analysis which raises the question of whether the improving employment situation of the past several months may be stalling. It is too early to determine if a trend change is occurring, but, if it is, it will be confirmed in the next couple of months. The outlook for continued recovery may suffer if there is a collapse in its weakest leg, employment.

Elliott Morss has an interesting analysis which concludes that the improving job numbers in 2010 have been entirely from government programs and that private sector jobs are largely stimulus related. Elliott concludes that the private sector on its own (not “stimulated” by the government) is shedding more than 300,000 jobs a month in the first half of 2010. This is not a backdrop that will readily absorb an additional job loss burden of more than half a million from government sources.

Elliott estimates that the stimulus will create an additional million or more jobs in the second half 2010. If the private sector job loss calculated for the first half continues in the second half of 2010, another 1.8 million or more private sector jobs will be lost, plus more than half a million temporary Census jobs and additional losses for state and local governments. If the economy does not continue to improve so that more private sector jobs are created, the title of this article could be a gross understatement. The number of employed could easily decline by more than a million, putting us right back at the levels seen in the second half of 2009. See the following graph of total employment from the St. Louis Fed (click to enlarge):

The next 3-4 months are crunch time for employment. If the recovery is going to run out of steam, it is likely to show up by the end of the third quarter.

Saturday, there was an exceptionally good article on Seeking Alpha by Dirk van Dijk discussing the very difficult factors involved with employment in this recession. I recommend it especially because it is written by one who has been more constructive on many aspects of this recovery than I have been. I believe it both adds good analysis and perspective to the discussion as well as coming to rather similar conclusions.

It appears that the summer of 2010 will a crtical time for the recovery. The stock market has been pricing in a moderate recovery, at the minimum. If the employment numbers start indicating a recovery is not assured, this summer could be grim for stocks.

Disclosure: Long several S&P 500 stocks. Frequently trade leveraged stock index ETFs - no current positions.

Source: More Than Half a Million Job Losses Coming